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Intracorp inks largest-ever financing deal with Grosvenor

Deal underscores the complexities of funding large-scale projects
Intracorp's Gardena project in Coquitlam is the largest ever financed in Canada by Grosvenor's structured finance division.

Cities are inseparable from the built environment; without a built environment, cities would not exist.

And increasingly, city planners are asking developers to deliver buildings that respond to a growing wishlist of objectives. Housing, jobs space, hotels and public amenities are all part of the mix within structures that meet stringent criteria for environmental performance.

But none of it is possible without money, and with interest rates continuing to cruise record highs, developers have had to become more creative with financing options.

A case in point is Gardena, a 745-unit residential development Intracorp is developing in Coquitlam that combines both strata-titled and rental units.

Valued at $450 million, the project is the largest in Intracorp’s history is the kind of development impossible for most developers to finance by themselves even with strong presales.

“A deal of that size required a lot of money for construction lending, which we’re getting from a consortium of Canadian banks, led by Scotiabank, which is providing construction financing for the project,” said Don Forsgren, CEO with Intracorp. “If we were to do that on our own, it would just mean we couldn’t do as many projects. There’s only so much capital.”

But high conventional financing rates mean alternate sources of funds can mitigate financing costs and make developers’ equity go even further.

In the case of Gardena, a tranche of funding came from Intracorp’s fellow developer Grosvenor, which since 2000 has made structured financing available to developers.

Staked through Grosvenor’s True North III Partnership, established to fund residential and mixed-use developments in Canada and the U.S., the funding totaled $39.6 million and represented Grosvenor’s largest-ever financing deal.

“As projects have become larger and more complex, it’s almost created a necessity for a lot of these projects to have a group like Grosvenor where they’re coming in and taking a position between the bank and the developer,” Forsgren said. “If that wasn’t available in the market, it would be very hard to get a project like that off the ground.”

The deal was the second for Intracorp through the True North III Partnership and its 26th deal with Grosvenor in the past 24 years. Grosvenor also funded a 295-unit development in Seattle, Wash.

Grosvenor’s three True North partnerships have provided more than $550 million in financing on projects worth $3 billion. And the opportunities are growing.

Grosvenor has funded 78 projects since 2000 in BC and Ontario as well as California, Colorado, Massachusetts, Washington, D.C. and Washington State.

“We believe 2024 has strong potential for the SDF programme given our expanded geographic footprint,” said Grosvenor senior vice-president Ashleigh Simpson, who oversees the structured development finance activities. “Among developers there is an acknowledgement that thoughtfully underwritten residential development opportunities in supply-constrained markets are likely to have positive reception from capital sources, and SDF has a role to play in this space.”

Given the complexity of projects, the need for structured financing is likely to continue even if the Bank of Canada’s benchmark policy rate begins falling in the second quarter, as many analysts expect. The first opportunity will be April 10, but many analysts are counting on June 5 being the date of the first cut.

While the easing of interest rates will send an immediate signal to the market, it will take time before the effects are fully felt.

Moreover, the secondary lenders who have rushed in to complement the traditional lenders will also take time to exit given the growth in their portfolios over the past two years.

“We have seen a big inflow of people that are looking to put out that money because of returns,”

Gagan Lalli, vice-president, real estate finance at CMLS Financial told commercial real estate association NAIOP Vancouver last November as part of a panel discussion on the lending environment.

But the panel also noted that everyone is looking for stability to help move the market forward after two years of dramatic shifts and uncertainties regarding valuations.

“Some stability will be helpful,” Lalli told NAIOP.